An examination of ex-ante factors and their influence on equity carve-out long-term performance

Abstract

This study examines the influence of several ex-ante factors on three-year market-adjusted returns of two-stage carve-out combinations from 1988 to 2006. We observe that several factors maintain their significance over a three-year period after equity carve-out ex-dates. Also, we report that, contrary to Vijh (J Bus 75(1):153–190, 1999), negative three-year carve-out returns are statistically significant. In addition, we note that negative combination carve-out/spin-off three-year returns are higher than those of carve-outs acquired by third parties or reacquired by their parents. Moreover, we observe that our independent variables explain 14.56% of the multiple regression three-year returns for carve-outs. Also, our negative correlation of three-year returns with initial period returns supports the “leaning against the wind” hypothesis of Loughran and Ritter (Rev Financ Stud 15(2):413–443, 2002). In addition, our results for the post-bubble period (2001–2006) provide an extension of the changing issuer objective function noted by Loughran and Ritter (Financ Manage 35(3):23–51, 2004) for IPOs and Hogan and Olson (J Financ Res 27(4):521–537, 2004) for equity carve-outs.